Britain’s Finance Minister Jeremy Hunt said he will present tax rises and spending cuts this week to show the UK can mend its public finances and restore its economic credibility after financial market chaos sparked by former prime minister Liz Truss.
Fears verging on outrage followed the initial news of even higher taxes after previous ideas under former Chancellor of Exchequer Kwasi Kwarteng’s “mini-budget” of lowering taxes came to nought.
However, Mr Hunt claimed poorer households should be spared much of the pain and cuts to public services would be balanced.
The minister said, ahead of the announcement of the budget plan on Thursday, that he did not want to deepen an expected recession but he had to demonstrate he could lower a budget deficit which has sky-rocketed after the COVID-19 pandemic and Russia’s invasion of Ukraine.
“You don’t want to do things that make any recession that you may be in worse,” Mr Hunt told Sky News on Sunday. “But on the other hand, if you do nothing, if you don’t show that we’re going to bring our debt down… interest rates get higher and you get a recession that’s made worse.”
After a bond market rout triggered by a string of unfunded tax cuts in Truss’s “mini-budget” in September, Mr Hunt and Prime Minister Rishi Sunak have warned they will take tough decisions at a time when 10 percent inflation is already squeezing households.
“We’re all going to be paying a bit more tax, I’m afraid,” Mr Hunt said. “We will be asking everyone for sacrifices but… we need to recognise that there’s only so much you can ask from people on the very lowest incomes.”
Mr Hunt planned to tackle a GBP 55 billion hole in Britain’s budget by freezing thresholds and allowances on income tax, national insurance, inheritance tax and pensions for a further two years, as reported by the Sunday Times. Also featuring in the finance minister’s plan is halving a tax-free allowance for capital gains and lowering the threshold for paying the top rate of income tax to GBP 125,000 pounds a year from GBP 150,000 pounds, the daily said.
The plan is met with certain resistance in the Conservative government as many lawmakers oppose higher taxes. Concerns are that big increases could revive the tensions in the party.
Commenting on the tax policy, Labour finance spokesperson Rachel Reeves said austerity was not the right approach.
“I’m arguing for two things: both fairer choices on taxes, but also crucially, a plan for growth,” she told Sky News.
Regarding the labour market, Mr Hunt said he would address relevant problems that have led to acute shortages of workers for companies.
Inquired whether Brexit was the reason Britain was the only Group of Seven economy yet to recover its pre-pandemic size, Mr Hunt told the BBC that he didn’t “think that’s the biggest issue… it’s much more to do with other factors in the labour market.”
He also said he would set out a long-term plan for energy after Russia’s invasion of Ukraine resulted in a surge in gas prices which has forced the government to lay out tens of billions of pounds to shield households from the worst of the surge.
Mr Hunt said it was “very important” the government supported households with a six-month cap on energy bills that is due to expire in April, but unlimited support was not sustainable.
The Sunday Times said Hunt was likely to commit 20 billion pounds to extend the cap for six additional months, a third of its estimated GPB 60 billion cost in its first six months, meaning bills were likely to rise.
On Saturday, sources said Hunt was considering a big increase in a windfall tax on oil and gas firms and extending it to power generation firms.
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